Answered: Explain the concept of price elasticity…

Explain the concept of price elasticity of demand and explain in detail the relationship between a change in price and total revenue under various demand elasticity conditions.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter5: Price Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 10SQ: Along a segment of the demand curve where the price elasticity of demand is less than 1, a decrease...

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In an attempt to increase revenues and profits, a firm is considering a 4 percent increase in price and an 11 percent increase in advertising. If the price elasticity of demand is 1.5 and the advertising elasticity of demand is +0.6, would you expect an increase or decrease in total revenues?
Along a segment of the demand curve where the price elasticity of demand is less than 1, a decrease in price a. is impossible. b. will increase total revenue. c. will decrease total revenue. d. decreases quantity demanded.
Suppose Erin, the owner-manager of a local hotel projects the following demand for her rooms: a. Calculate the price elasticity of demand between 90 and 110. b. Is the price elasticity of demand between 90 and 110 elastic, unit elastic, or inelastic? c. Will Erins total revenue rise if she increases the price from 90 to 110? d. Calculate the price elasticity of demand between 110 and 130. e. Is the price elasticity of demand between 110 and 130 elastic, unit elastic, or inelastic? f. Will Erins total revenue rise if she increases the price from 110 to 130?
(Price Elasticity of Supply) Calculate the price elasticity of supply for each of the following combinations of price and quantity supplied. In each case, determine whether supply is elastic, inelastic, perfectly elastic, perfectly inelastic, or unit elastic. a. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 400 units. b. Price falls from $2.25 to $1.75; quantity supplied falls from 600 units to 500 units. c. Price falls from $2.25 to $1.75; quantity supplied remains at 600 units. d. Price increases from $1.75 to $2.25, quantity supplied increases from 466.67 units to 600 units.
Consider the following demand schedule: Price Quantity demanded Total revenue $10 3 $30 $ 9 4 $36 $ 8 5 $40 $ 7 6 $42 $ 6 7 $42 $ 5 8 $40 Required: Using total revenue, identify the price range where the price elasticity of demand is relatively elastic. Using total revenue, identify the price range where the price elasticity of demand is relatively inelastic. Using total revenue, identify the price range where the price elasticity of demand is unit elastic. Discuss three factors that tend to make the price elasticity of demand for a product more elastic.